Other Tax Deductible Considerations

There are many tax-friendly instruments that help you save on income taxes. Apart from the common instruments such as life insurance, National Savings Certificate (NSC), Public Provident Fund (PPF), there are two other tax-friendly investments. Let's look at these in detail.

Rajiv Gandhi Equity Saving Scheme (RGESS)

RGESS is an investment scheme aimed at encouraging people to invest in the stock market. The scheme is available only to those who have not invested in the stock market before. To invest in RGESS, an investor should not have an annual income of more than 12 lakhs. RGESS investments have a lock-in period of three years. However, after the first year you can reinvest the original amount in any other RGESS investment.

Tax benefits of RGESS

You can deduct 50 per cent of the amount invested in RGESS from your taxable income. The maximum investment allowed in RGESS is ₹50,000 in a year. For example, if you invest ₹40,000 in RGESS you can deduct ₹20,000 from your taxable income. Note the tax benefit is available only for the first three years, and so the investor can invest up to ₹150,000 in three years. Any RGESS investment after the third year will not be eligible for a tax benefit.

How to invest in RGESS?

You can invest in RGESS by purchasing shares of certain qualifying companies like BSE-100 or CNX-100 companies. Alternatively, you can invest in RGESS through designated RGESS mutual fund schemes, such as the HDFC RGESS-2, DSP BlackRock RGESS Fund, LIC Nomura MF RGESS Fund, etc. Whether you are investing directly or through mutual funds, you need to open a demat account, which is specifically designated for RGESS investments.

Senior Citizens Savings Scheme (SCSS)

As the name suggests, SCSS is a tax-saving scheme specially designed for senior citizens above the age of 60. SCSS is a very safe investment as it is backed by the Government of India. The scheme is available only to individuals and not to NRIs or HUFs.

How to invest in SCSS?

SCSS units are available in multiples of ₹1,000. The maximum investment allowed in SCSS is ₹15,00,000. SCSS pays an interest of 9.20 per cent every year, and the interest is credited every three months. The quarterly interest pay-out makes SCSS an attractive option for senior citizens as they can get a regular source of income. SCSS investments have a lock-in period of 5 years, and the investment term can be extended by another 3 years. Investors can also open a joint SCSS account with their spouse.

SCSS investments can be made through any of the post offices, and also through select nationalized and private banks.

Tax benefits of SCSS

Investors can get a tax benefit of up to ₹150,000 per year for SCSS investments. SCSS withdrawals are fully taxable.